Why Gasoline Prices Are So Different Around the US

Retailgasoline prices in the US have skyrocketed over 13 percent — more than 40 cents — so far this year, as the price of crude oil has surged to the highest level since last May.

The national average for regular gasoline rose to $3.70 Friday, up 14 cents in the past week — and only about 40 cents shy of the all-time record high of $4.11 a gallon reached in July 2008.

While many are feeling the pain at the pump, Americans are seeing widely divergent prices depending on where they live.

Why are drivers in Fort Collins, Colorado paying a little over $3, while those in Santa Barbara, California are seeing gas prices at $4.33 a gallon?

Colorado, Montana, Utah and Wyoming have the cheapest pump prices in the country, at about $3.21 a gallon or less on average, while retail gasoline prices are near $4.30 a gallon in California and are over $4 in some parts of New York.

The answer lies in the "chaos" in crude oil prices around the nation, says OPIS energy analyst Tom Kloza. "There's never been more diversity in crude oil prices. There's never been more diversity in gasoline prices."

The divergence in pump prices comes from the wildly differing wholesale prices for gasoline. The wholesale price of gasoline in the Rocky Mountains and Midwest is about 20 to 40 cents cheaper than on the East Coast, for example.

“The fact that a refinery in the Midwest can process crude oil that costs $30 less than on the East Coast is a big factor in the wildly divergent price of that refined fuel,” Kloza says.

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The price of the refined fuel reflects regional supply issues that face refiners in various parts of the country, based on the type of oil they process. Crude oil in some landlocked areas in the Midwest — such as North Dakota, where there has been a tremendous supply surge recently — reached about $95-$96 a barrel Friday. For refineries that use sour crude in the Midwest, Western Canadian Select grade of crude, a heavy grade, the price is closer to $91 a barrel.

Yet, on the East Coast, refining capacity, and as a result gasoline supply, has been drastically reduced in the past few months. Two refiners outside of Philadelphia, which account for 20 percent of the gasoline in the northeast have shut down. Overall U.S. and European refinery shutdowns have taken about 2.6 million barrels of gasoline supply off the market since 2009, says Houston-based energy analyst Andy Lipow.

East Coast refiners import most of crude oil from Europe and West Africa. North Sea Brent crude prices rose have risen above $125 a barrel. Light Louisiana sweet crude prices on the Gulf Coast reached $130 a barrel on Friday, due to tight supplies of European and West African crude blends.

(RBOB gasoline futures traded at the CME Group's New York Mercantile Exchange — in close proximity to East Coast refiners and delivery terminals — also more closely reflects the Brent crude price. March RBOB gasoline futures rose 1 percent Friday to settle at a 2012 high of $3.15 a gallon.)

Wholesale oil and gasoline prices have been rising sharply all over the country in the past few days, Kloza says. "At this rate, it's a foregone conclusion retail prices will rise another 5 to 15 cents a gallon this week." Retail gasoline prices have already spiked 5 cents since Friday.

At this rate, if the surge in gasoline prices next month mirrors the month of February, record pump prices may be in store even before the summer driving season gets underway.